Insurers Fight Paying Business Interruption Claims For COVID

Business interruption insurance was supposed to offer protection from the large financial losses caused by the Coronavirus and subsequent government mandated shutdowns. Or so everyone assumed. In spite of large premiums paid year after year, many insurers are fighting businesses in court who demand to be compensated for COVID related business losses.

Courts so far have sided mostly with insurers when businesses claimed the pandemic interrupted their business operations and insurance should cover it. The rulings have left many businesses in the lurch. A debate now rages over what expenses and lost revenue from the pandemic should be covered by business interruption insurance. Insurers are taking the position that the introduction of a virus does not constitute direct physical loss or damage to insured property, and claim the scale of potential losses is too great for the private sector to shoulder.

That hasn’t stopped some business owners who have decided to sue after their insurers said their policies excluded losses due to viruses and pandemics. Attorneys are vigorously defending their business owner clients, claiming that while most business interruption policies do not have express pandemic coverage, most also do not have an express pandemic exclusion. A business might be covered if its business insurance policy has a specific yet limited grant of coverage for “communicable disease.” In such a case, a business owner would have to prove its employees tested positive for COVID-19, and that its business was directly impacted by the disease. Some policies with disease extensions require a governmental shutdown order linked to an on-location outbreak, and some do not.

Early in the pandemic, insurance industry leaders sought to dissuade businesses from filing claims for revenue lost to the quarantine if policies did not expressly state that viruses and pandemics were covered. The American Property Casualty Insurance Association (APCIA) estimated that government closures have cost businesses $255 billion to $431 billion a month, far exceeding the ability of insurers to pay, and maintains that since the government mandated the business shutdowns, the federal government should be bailing out the businesses that have a qualified need.

Lawsuits so far have advanced a handful of arguments. Some suits say owners were covered for shutdowns caused by “actions of civil authority.” Others say their “all perils” policies cover losses from viruses or pandemics unless their policies specifically exclude them. Some insurers created policies after the Ebola and SARS pandemics in the early 2000’s that specifically excluded viruses and pandemics, but continued to sell higher-priced “all perils” policies without that language, so some attorneys maintain that policies without the specific exclusions should be required to cover viruses and pandemics.

In summary: While the Coronavirus has had a catastrophic economic impact on businesses of all sizes, it is not clear that the adverse effects will be covered under business interruption insurance policies because payouts on those policies are often triggered by physical damage. However, some have argued that the shutdown orders caused business owners to suffer a “direct physical loss” of the use of their properties.

Reach Out To Us: Insurers will continue to fight businesses over coverage for COVID-19 shutdowns, however that does not mean that business interruption insurance has no value otherwise or in different circumstances. Working with your attorney, our accountants can help with building evidence and the document trail that should be included to verify and support your claim submission such as:

• Monthly Profit and Loss Statements
• Monthly and Daily Production Reports
• Monthly Inventory • Monthly Cost Accounting Reports
• Pre-closure Projections
• Invoices and Purchase Orders, Canceled Orders
• Coronavirus-Related Expenses: facility cleaning, extra security during closure, protective equipment, additional advertising for re-opening, etc.
Regardless of what happens in the courts with COVID-19 claims, insurers, businesses, and governments will have to figure out if future pandemics can be insured by the private sector. Contact our accountants and business consultants with your questions at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .